Month: July 2023

As the cost of higher education continues to rise, many parents and future students are confronted with the challenge of planning for this significant financial responsibility. Some students may receive support in the form of grants or scholarships, but these don’t always cover the full cost of a college education. Student loan debt can take years to erase and may make it harder to reach your financial goals.

Thankfully, there are a number of investment accounts that can make it easier to save for education expenses. Let’s discuss a few of the options that may be worth considering.

529 Savings Plan

The predominant college savings vehicle is the 529 savings plan, and it’s available everywhere across the US in one form or another. These plans are state-sponsored and can be categorized as either education savings plans or prepaid tuition plans, with the primary difference between the two being how their distributions can be allocated.

Anyone – parents, grandparents, extended relatives, friends, and even your child themself – can open and make contributions to this type of plan. Contribution limits differ from state to state.

529 Education Savings Plan

The standard type of 529 plan, an education savings account functions a lot like other tax-advantaged investment accounts in that it provides incentives that make it easier to save towards your goals – school, in this case. Contributions occur on an after-tax basis and funds in the account can be invested tax-free. No income taxes are due upon withdrawal as long as the money is spent on qualifying education expenses.

You can withdraw from a 529 education savings account to pay for qualifying education expenses starting from the time the beneficiary starts kindergarten on through their college years. If your child goes to a private elementary or high school, your withdrawals can also be used to help pay for this tuition. However, the IRS only allows up to $10k per year to be spent from this account between the years of kindergarten and 12th grade.

If your child doesn’t end up going to college, you can change the beneficiary on the account to another eligible beneficiary or convert your 529 to a Roth IRA. Taking non-qualified distributions from your 529 may result in having to pay income taxes on the withdrawal plus a 10% penalty.

529 Prepaid Tuition Plan

The prepaid tuition plan is designed to help students pay for public, in-state college by allowing them to pay some or all of the tuition costs ahead of time. Your account contributions are invested and guaranteed to grow at the same rate as college tuition costs, ensuring that the contents of the account scale to fit your tuition needs.

In comparison to the education savings plan, you’re more limited when it comes to deploying a prepaid tuition plan’s funds. The withdrawals from this account can only be used for college tuition and fees – they cannot be used for room and board or other expenses commonly associated with university. Additionally, prepaid tuition plans are only available in certain states.

Generally speaking, prepaid tuition plans offer a simpler and less risky alternative to the standard 529 education savings plan, albeit with less flexibility. If your child’s college plans change, you may be able to convert the account into one that helps cover private or out-of-state tuition, but there’s no guarantee that your prepaid plan will cover all of the new tuition costs.

Roth IRA

Although Roth IRAs are most frequently used to save for retirement, they can also be used to pay for qualified educational expenses. No additional penalty is assessed on these withdrawals, but you’ll still have to pay income taxes if you make any prior to retirement age. This tradeoff may be worth considering for parents because of the simplicity that comes with managing fewer accounts. Any excess funds that aren’t ultimately used for college can remain invested within the account for retirement, so you can save for both goals simultaneously.

Custodial UGMA and UTMA Accounts

The Uniform Gift to Minors Act (UGMA) and the Uniform Transfer to Minors Act (UTMA) offer two custodial savings accounts that can be used to save for your child’s education. Contributions to these accounts are made post-tax, and while there is no limit to the amount you can contribute to these accounts, you will have to pay gift taxes on contributions that exceed $17,000 per year. Unlike the 529 savings plan, the funds in these accounts are not limited to qualified education expenses; they can be used for anything.

Choosing the Right Plan

When saving for your child’s education, there are many plans for you to choose from that afford you the potential to grow your contributions over time. As with your other investments, time and discipline are key to achieving your long-term goals. If you could use help deciding which plan best suits your family’s needs, reach out to your financial advisor.

Best,

Robert (Rory) J. O’Hara III, CFP®, CRPC®

Founder I Senior Managing Partner

This material is intended for informational/educational purposes only and should not be construed as tax, legal or investment advice, a solicitation, or a recommendation to buy or sell any security or investment product. Investments are subject to risk, including the loss of principal. Some investments are not suitable for all investors, and there is no guarantee that any investing goal will be met. Certain sections of this material may contain forward-looking statements. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is no guarantee of future results. Third-party links are provided to you as a courtesy. We make no representation as to the completeness or accuracy of information provided at these websites. Information on such sites, including third-party links contained within, should not be construed as an endorsement or adoption of any kind. Please consult with your financial professional and/or a legal or tax professional regarding your specific situation and before making any investing decisions.

A 529 plan is a college savings plan that allows individuals to save for college on a tax-advantaged basis. Every state offers at least one 529 plan. Before buying a 529 plan, you should inquire about the particular plan and its fees and expenses. You should also consider that certain states offer tax benefits and fee savings to in-state residents. Whether a state tax deduction and/or application fee savings are available depends on your state of residence. For tax advice, consult your tax professional. Non-qualifying distribution earnings are taxable and subject to a 10% tax penalty.

1. Shop for Insurance

Health insurance can be invaluable for newborns and parents, so think about adding your baby to your insurance plan as soon as you’re able to. Your insurance often covers the delivery of your baby as well as their post-birth care and subsequent wellness visits. Since having a baby is a qualifying life event, you may be allowed to change policies or upgrade to a higher tier of coverage if it would better suit your family’s needs.

You never know when a sudden injury or illness could keep you from working – and for how long – so disability insurance might also be a wise investment to protect your earning potential. Consider a policy that can cover essential costs like debts, childcare, and different household expenses.

You can also opt for a life insurance plan to replace part of your income in the event of an untimely death. This can serve as a safety net for your loved ones, helping them pay for things like a mortgage, childcare, and college tuition.

2. Get Your Estate Plan in Order

Without important legal documents in place to handle your finances once you’re no longer around, your loved ones may be burdened with unnecessary confusion and heartache. That’s why it’s important to decide where you’d like your assets to go and stipulate other end-of-life preferences. While these can be difficult subjects to talk about, setting up a trust account or will can save your family and your children time, money, and stress should anything happen to you unexpectedly or otherwise.

If you already have an estate plan in place, consider updating these documents regularly with your attorney, especially when you’re expecting a child. Beyond the financial concerns, a living will also allows you to assign a legal guardian for your children so you can ensure they’re cared for in your absence.

3. Start a College Fund

College is expensive and tuition costs seem to rise year after year. While things like grants, scholarships, and other forms of financial aid may help reduce the amount you have to pay for school, starting to save early can help relieve some of the stress funding your child’s education might impose down the road.

Think about opening a 529 college savings account (or another account that serves a similar purpose) while your child is still young to give your contributions more time to grow. Some parents choose to start saving when a pregnancy is confirmed, while others wait until after their child is born. Note that the stated beneficiary of the account must have a social security number, so if they’re still unborn, you’ll have to name another beneficiary in the meantime.

4. Take Advantage of Tax Breaks

The IRS offers a number of tax breaks to parents that can help you manage the costs associated with raising a child. The Child Tax Credit, for instance, allows you to claim a credit for each of your children younger than 17. When your child is older, the American Opportunity Tax Credit and Lifetime Learning Credit can help offset the costs of higher education.

Flexible spending accounts (FSAs) are another tax-advantaged option that parents can use. These employer-sponsored programs cover out-of-pocket costs for health and childcare. That includes expenses for daycare, Pre-K, and before- and after-school programs for children up to 13 years old.

5. Bolster Your Emergency Fund

Emergency savings are an essential part of your family’s financial security. These “rainy day” funds exist to protect you and your loved ones in the event of an unexpected job loss, injury, illness, or any other unforeseen expense. It’s often recommended that parents keep between six and 12 months’ worth of living expenses earmarked for emergencies, although your needs may differ based on your family’s circumstances. Consider housing these funds somewhere you can easily access them when needed, like a savings or money markets account.

6. Don’t Lose Track of Your Retirement Plan

While planning for your children’s future is critical, you can’t forget about yourself. Raising kids is hard work, and you deserve to retire when you’re ready. To help ensure you can support yourself later in life, take advantage of your employer-sponsored 401(k) program – especially if the company you work for matches a certain percentage of contributions. If you don’t have access to a 401(k), think about using an IRA. These long-term savings accounts can be used to grow your nest egg over the course of your working life. After all, you may not want to depend on financial support from your children down the road.

Building Your Plan

Adding to the family can be a big financial step, but by being proactive with your planning, you can help make the transition smoother and less stressful. After all, you want to be enjoying parenthood during this time, not worrying about money. If you’re a new or expecting parent looking to get your finances in order, a financial advisor can work with you to find solutions that address your unique needs. Connect with an advisor today to learn more.

 Best,

Robert (Rory) J. O’Hara III, CFP®, CRPC®

Founder I Senior Managing Partner

This material is intended for informational/educational purposes only and should not be construed as tax, legal or investment advice, a solicitation, or a recommendation to buy or sell any security or investment product. Investments are subject to risk, including the loss of principal. Some investments are not suitable for all investors, and there is no guarantee that any investing goal will be met. Certain sections of this material may contain forward-looking statements. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is no guarantee of future results. Third-party links are provided to you as a courtesy. We make no representation as to the completeness or accuracy of information provided at these websites. Information on such sites, including third-party links contained within, should not be construed as an endorsement or adoption of any kind. Please consult with your financial professional and/or a legal or tax professional regarding your specific situation and before making any investing decisions.

A 529 plan is a college savings plan that allows individuals to save for college on a tax-advantaged basis. Every state offers at least one 529 plan. Before buying a 529 plan, you should inquire about the particular plan and its fees and expenses. You should also consider that certain states offer tax benefits and fee savings to in-state residents. Whether a state tax deduction and/or application fee savings are available depends on your state of residence. For tax advice, consult your tax professional. Non-qualifying distribution earnings are taxable and subject to a 10% tax penalty.

Retirement marks the beginning of a new chapter in your personal journey, an opportunity to explore, learn, and enjoy life at your own pace. It also represents the culmination of many years of hard work and careful planning. Until this point, your career has likely played a starring role in your life, providing you with structure, purpose, and fulfillment. When you’re ready to step away from work and into your well-earned retirement, it’s important that you find new outlets for these things.

So, how do you make sure your “golden years” are genuinely golden? Here are ten tips to help you navigate retirement and make it a fulfilling and joyful period of your life.

1. Start With a Vision

Retirement is your blank canvas, and you are the artist. Before you put away your work tools, take some time to envision what you’d like your retirement years to look like. Do you dream of traveling the world? What about diving into your favorite hobby? Perhaps you’re hoping to enjoy your new-found freedom in the company of friends and family.

It may seem simple, but many people don’t stop to consider what their retirement will look like until it arrives. Whatever you’re imagining, your retirement should reflect your personal dreams and goals.

2. Experience New Things

Having new experiences isn’t just about having fun, although enjoying yourself should be a priority in retirement. Experiencing new things can help keep your mind active, which in turn can help delay or slow the onset of age-related cognitive decline. These experiences might include learning a new language, picking up a new hobby, or traveling to a new place.

Exposing yourself to new challenges and sensations is emotionally, physically, and intellectually stimulating. These experiences can help you maintain your adaptability, which can be important as you age and encounter new life circumstances. It’s never too late to try something new, and retirement offers the freedom to do the things you might not have been able to do while you were working.

3. Find Your Purpose

It’s crucial to replace the sense of purpose you derived from your professional career with a new purpose in retirement. Purpose gives you a reason to wake up in the morning, an enthusiasm that permeates your life, and fuels your days with meaningful activities.

Discovering your purpose in retirement ensures that this stage of life is not just about stopping work, but rather about pursuing new passions, contributing to society, or achieving personal goals, all of which can provide satisfaction and joy.

4. Create a New Routine

Your career likely provided structure to your life, so you’ll have to find new ways of creating structure once you’ve retired. Creating a new daily routine can help do that.

Routines foster a sense of purpose, aid in time management, and promote productivity. They can also involve social activities, which help combat loneliness and keep you engaged. Each of these things  contributes to your overall well-being and can make the transition from working life to retirement life easier to manage. Moreover, a routine ensures you are consistently committed to making the most of this phase of your life.

5. Stay Connected

Maintaining meaningful social connections is essential at all stages of life, particularly during retirement. These connections help stave off feelings of isolation and loneliness, contribute to a sense of belonging and interconnectedness, and can even improve cognitive health. Social interactions provide outlets for learning, personal growth, and emotional support, all of which serve to enhance your overall quality of life. Spend time with family and friends, join clubs or groups, volunteer, or consider part-time work or mentoring to stay socially involved.

6. Embrace Leisure

Retirement is something you’ve worked hard for, so don’t shy away from enjoying it. Savor the freedom of unhurried moments, like immersing yourself in the rich flavor of your morning coffee or diving deep into a captivating novel. Take afternoon naps or leisurely walks and embrace the slower pace that retirement affords. This period of your life is a well-deserved respite, a chance to reflect, rejuvenate, and reorient towards the pursuits that bring joy and contentment. Take pleasure in this slower rhythm; it’s not laziness, it’s a celebration of your life’s work.

7. Give Back

Finding ways to give back – whether that involves donating, volunteering your time, or offering some other benefit – can enrich your retirement years with the purpose and satisfaction that comes from knowing you’re making a difference in your community. Whether it’s a local school, a food bank, or an animal shelter, there are numerous opportunities to give back and make an impact.

8. Prioritize Your Health

Your health is the most important aspect of your retirement, as it affects your ability to enjoy it. Schedule check-ups with your doctor and keep close tabs on any existing medical conditions to make sure you stay in good physical and mental health. Regular exercise, a balanced diet, and adequate sleep can go a long way toward ensuring you’re physically fit to make the most of your retirement years but don’t forget to consider your mental health, too.

9. Maintain Financial Security

Financial concerns contribute to anxiety no matter what age you are, but that anxiety can be exacerbated once you’re no longer earning a regular wage. That’s why it’s so important to maintain your financial security by making smart, well-thought-out decisions when it comes to spending and investing your hard-earned money.

Ensure you have a clear understanding of your various sources of retirement income and expenses. If you could use some professional guidance, consult with a financial advisor who can help you make the best use of your savings, investments, Social Security benefits, and other income streams. With life expectancies rising steadily, your retirement could last longer than you initially planned for. An advisor can help you adjust your plan to account for your longevity and ensure your nest egg goes the distance.

Conclusion

Retirement is a significant transition, representing at once the closing of one life chapter and the beginning of another. It’s an exciting new phase filled with opportunities, but taking advantage of those opportunities may require you to adjust your mindset and way of living. By planning ahead, staying active and engaged, and taking care of your health and finances, you can help make your retirement years fulfilling and enjoyable.

Could you use help planning for your retirement or reviewing an existing retirement plan? Connect with a member of our team at your convenience. We look forward to hearing from you.

Best,

Robert (Rory) J. O’Hara III, CFP®, CRPC®

Founder I Senior Managing Partner

This material is intended for informational/educational purposes only and should not be construed as tax, legal or investment advice, a solicitation, or a recommendation to buy or sell any security or investment product. Investments are subject to risk, including the loss of principal. Some investments are not suitable for all investors, and there is no guarantee that any investing goal will be met. Certain sections of this material may contain forward-looking statements. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is no guarantee of future results. Third-party links are provided to you as a courtesy. We make no representation as to the completeness or accuracy of information provided at these websites. Information on such sites, including third-party links contained within, should not be construed as an endorsement or adoption of any kind. Please consult with your financial professional and/or a legal or tax professional regarding your specific situation and before making any investing decisions.